All investors like to get big returns from their portfolio, whether through stocks, bonds, ETFs or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary goal.
Cash flow can come from bond interest, interest from other types of investments and, of course, dividends. A dividend is that coveted distribution of a company’s earnings paid out to shareholders, and investors often think of it by its dividend yield, a metric that measures the dividend as a percentage of the current share price. Many academic studies show that dividends are a significant part of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
TrustCo Bank in a nutshell
Based in Glenville, TrustCo Bank (TRST – Free Report) is a financials stock that has seen a price change of -3.69% so far this year. Trustco Bank’s holding company currently pays a dividend of $0.35 per share, with a dividend yield of 4.36% compared to the Banks – Northeast sector’s 2.33% yield and the S&P’s 1.52% yield. 500.
In terms of dividend growth, the company’s current annualized dividend of $1.40 is up 2% from last year. Over the past 5 years, TrustCo Bank has increased its dividend 3 times on an annual basis for an average annual increase of 1.14%. Future dividend growth will depend on earnings growth as well as the payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. TrustCo’s current payout ratio is 42%. That means it paid out 42% of its 12-month EPS as a dividend.
TRST expects earnings to increase this fiscal year as well. The Zacks consensus estimate for 2022 is $3.35 per share, representing a year-over-year growth rate of 5.02%.
Investors love dividends for a variety of reasons, ranging from tax benefits and lower overall portfolio risk to vastly improved earnings from equity investments. However, not all companies offer quarterly payment.
For example, it is rare for a technology start-up or a large growing company to offer a dividend to its shareholders. It is more common to see larger companies with more established earnings handing out dividends. During periods of rising interest rates, income-oriented investors should be aware that high-yielding stocks tend to struggle. That said, they can take comfort in the fact that TRST is not only an attractive dividend play, but also a compelling investment opportunity with a Zacks ranking of #1 (Strong Buy).